The El-LAF-ant in the Room

By: Darren Chu

Calgary passed its 2023 budget, and the average Calgarian could expect to see an increase to the municipal portion of their tax bill next year of only (approximately) $10-per-month. But this is a bit of a smokescreen as the municipal tax on electricity (also charged to homeowners) increased by 21% in December.

There’s a municipal tax on my utility bill? You bet there is. You’ll find it under Local Access Fee, or LAF. The LAF is specific to your wires provider and is charged regardless of your chosen retailer. For Calgarians, the LAF is set by the City of Calgary, ENMAX Wires bills the retailer, and the retailer collects from the consumer.

The Local Access Fee, previously known as the Municipal Consent and Access Fee, is a fee set by municipalities and applies to all electric services located within their region. Depending on the municipality, the LAF is calculated differently.

Our question to the new Minister of Affordability and Utilities, Matt Jones, is, “Should a municipality like Calgary have the right to add a municipal tax to a consumer’s utility bill?” We recommend Minister Jones remove the LAF from utility bills and have municipalities collect the tax as part of their normal property tax assessments. The LAF artificially inflates the consumer’s utility bill.

If you compare a typical customer in Calgary to one in Edmonton for November, the Calgary consumer would have paid an extra $21 in municipal fees, while the consumer in Edmonton paid about $7. Many municipalities in Alberta charge nothing. Minister, if you are not successful in removing the tax from the utility bill, consider capping the amount added to the monthly utility invoice.

The City of Calgary increased the Local Access Fee by 78% during the five years from 2016 to 2021. In 2016, Calgary collected $88 million; in 2021, the tax went up to $157 million. During the first six months of 2022, the tax increased by a further 47% over the same period in 2021. Let’s put that into perspective. The dividends paid to the City of Calgary by ENMAX, based on the utility’s profits last year, were $58 million, and the municipal tax will be double the corporate dividend. The city collected $108 million alone in the first six months of 2022 from the LAF.

Even though 61% of consumers have gotten off the Regulated Rate Option (RRO) and switched to a lower price, ENMAX is still using the RRO to calculate the Local Access Fee. The LAF is increasing because it is indexed to the high RRO price, and the RRO is indexed to the cost of generation.

The cost of generation has increased for many reasons. The early conversion from coal generation to gas-fired units, constraints on gas supply, a higher federal carbon tax, and intermittent renewable generation all play a role in energy prices. This is a double-whammy. The cost of energy is now the highest in the history of Alberta, which has driven up the RRO (currently at 22.133 cents/kWh in the Calgary region). Our question then becomes, what does a municipal tax have to do with the energy crisis and energy supply constraints facing Alberta’s generators? And why do customers who pay less than 10 cents per kWh from local Energy Marketers have to pay a Local Access Fee based on a (regulated) rate they’re not on?

Minister Jones, we recommend that you consider protecting consumers per your mandate by addressing the Local Access Fee and how it artificially inflates utility bills. When the revenue from the LAF is greater than the profits and dividends paid by the city’s utility company, there’s a problem to be fixed.

The elephant in the room has become too bloated. It’s time to either put him on a diet or cut him loose altogether.